AICPA Exam CPA-Business Topic 2 Question 95 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 95
Topic #: 2

A change in credit policy has caused an increase in sales, an increase in discounts taken, a decrease in the amount of bad debts, and a decrease in the investment in accounts receivable. Based upon this information, the company's:

AAverage collection period has decreased.

BPercentage discount offered has decreased.

CAccounts receivable turnover has decreased.

DWorking capital has increased.

Show Suggested Answer

Suggested Answer: A

Choice 'a' is correct. Average collection period has decreased due to a change in credit policy that has caused:

1. Increase in sales,

2. Increase in discounts taken,

3. Decrease in the amount of bad debt; and

4. Decrease in the investment in accounts receivable

Choice 'b' is incorrect. Percentage discount offered has probably increased, as discounts taken has increased.

Choice 'c' is incorrect. Accounts receivable turnover has increased, as sales are up and accounts receivable are down.

Choice 'd' is incorrect. Change in gross profit and working capital is not determinable from these facts.

by Magnolia at Aug 24, 2024, 08:07 AM

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Donette

2 months ago

I'm going to have to agree with Vallie on this one. Accounting can be so dry, we need more humor in these questions.

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Vallie

2 months ago

Trick question! The answer is obviously E. Become a professional comedian and forget about accounting exams.

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Deja

1 months ago

D) Working capital has increased.

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Nicolette

2 months ago

C) Accounts receivable turnover has decreased.

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Felix

2 months ago

B) Percentage discount offered has decreased.

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Nguyet

2 months ago

A) Average collection period has decreased.

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Tiera

2 months ago

D seems like the right answer to me. If the investment in accounts receivable has decreased, then the working capital must have increased.

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Dacia

1 months ago

Yes, that makes sense. It seems like D is the correct answer.

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William

1 months ago

I agree, if the investment in accounts receivable has decreased, then working capital must have increased.

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Blondell

2 months ago

D) Working capital has increased.

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Basilia

2 months ago

C) Accounts receivable turnover has decreased.

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Lorita

2 months ago

B) Percentage discount offered has decreased.

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Terrilyn

2 months ago

A) Average collection period has decreased.

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Xochitl

3 months ago

This is a tricky one, but I'm going with C. The increase in sales and decrease in accounts receivable means the accounts receivable turnover has gone down.

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Yvette

2 months ago

Hmm, that's a good point. It's definitely a tricky question to analyze.

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Sharika

2 months ago

I see your point, but I still think it's C. The decrease in accounts receivable would impact the turnover ratio.

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Alease

2 months ago

I disagree, I believe it's D. With the decrease in bad debts and increase in discounts taken, working capital would increase.

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Lizette

3 months ago

I think it's A. The decrease in average collection period makes sense with the increase in sales.

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Jenise

3 months ago

I'm not sure, but I'd guess B. If the discounts taken have increased, then the percentage discount offered must have decreased.

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Theodora

2 months ago

I agree with you, Theodora. A sounds like the correct answer.

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Luther

3 months ago

I think the answer is A. If sales have increased, the average collection period would decrease.

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Melvin

3 months ago

I see your point, Ryan. However, I still think the most logical answer is A) Average collection period has decreased, as it directly relates to the information provided.

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Flo

3 months ago

Hmm, I think the answer is A. The decrease in bad debts and investment in accounts receivable suggests the average collection period has gone down.

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Deane

3 months ago

So, the answer is A then. The change in credit policy seems to have had a positive impact on the company's sales and collections.

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Shelia

3 months ago

I agree, the decrease in bad debts and investment in accounts receivable would lead to a decrease in the average collection period.

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Ryan

3 months ago

But wouldn't the decrease in bad debts also affect the accounts receivable turnover? I think the answer might be C) Accounts receivable turnover has decreased.

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Elly

4 months ago

I agree with Wilson, because with an increase in sales and decrease in accounts receivable, the collection period would naturally decrease.

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Wilson

4 months ago

I think the answer is A) Average collection period has decreased.

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